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ULI Real Estate Economic Forecast A Survey of Leading Real Estate Economists/Analysts

October 2019

ULI Center for Capital Markets and Real Estate

ULI Real Estate Economic Forecast

• Three-year forecast (‘19-’21) for 27 economic and real estate indicators.

• A consensus forecast based on the median of the forecasts from 41 economists/analysts at 32 leading real estate organizations.

• Respondents represent major real estate investment, advisory, and research firms and organizations.

• This is the 16th survey; completed August 6 – August 27, 2019.

• A semi-annual survey; next release planned for April 2020.

• Forecasts for:

– Broad economic indicators

– Real estate capital markets

– Property investment returns for four property types

– Vacancy rates and rents for five property types

– Housing starts and prices


Overview

The ULI Real Estate Economic Forecast indicates the following:

• Continued economic expansion over the three forecast years, with growth moderating over that period. For example, GDP growth is forecast at 2.3% in ’19, above the long-term average, but is expected to fall below the long-term average of 2.2% in ‘19 and ’20. Employment growth is forecast to remain above the long term average throughout the forecast period, but moderate to 1.50 million by 2021, which would be the lowest employment gain since 2010.

• Relatively high but moderating commercial real estate transaction volumes; continued but moderating commercial price appreciation; continued but moderating rent growth; moderating returns, with the exception of retail returns which improve by ‘21; better than long-term average vacancy/occupancy rates, but with a slight retreat from the tightest recent rates; continued strong single family housing starts but remaining at levels below the long-term average and moderating by ’21.

• Altogether, 17 real estate indicators projected to be better than their 20-year averages in 2019 while 6 are expected to be worse. By 2021, 9 indicators expected to be better than their 20-year average and 12 are expected to be worse. Also, inflation, the 10-year Treasury rate and the NCRIEF capitalization rate are projected to be below their long-term averages in both ‘19 and ‘21.

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Forecasts vs. Long-Term Averages

2019 Forecast 2021 Forecast

Better than long-term averages

Worse than long-term averages

GDP Growth CMBS Issuance

Unemployment RateEmployment Growth

Hotel RevPAR Change

REIT Total ReturnsNCREIF Industrial Returns

NCREIF Returns: Apartment, Office, Retail

Transaction Volume Single-family starts

CPPI Growth

Vacancy/Occupancy: Industrial, Apartment, Office, Retail, Hotel

Rental Rate Growth: Industrial, Office, Apartment, Retail

Home Price Growth

Better than long-term averages

Worse than long-term averages

Unemployment Rate GDP Growth

Employment Growth CMBS Issuance

Transaction Volume CPPI Growth

Vacancy/Occupancy: Industrial, Apartment, Office, Retail, Hotel

NCREIF Returns: Industrial, Apartment, Office, Retail

Rental Rate Growth: Industrial, Apartment*, Office*

Rental Rate Growth: Retail

REIT Total Returns

Hotel RevPAR Change

Single-family starts

Home Price Growth

*equal to long-term average


Key Findings

• Transaction volume reached a post-recession high of $579 billion in 2018. Annual volume is forecast to moderate during the forecast period to $500 billion in ’19, $480 billion in ‘20, and $470 billion in ‘21. Still, these are among the highest annual volumes and remain well above the long-term average.

• Issuance of commercial mortgage-backed securities (CMBS), a source of financing for commercial real estate, has rebounded since a low in ‘09 but to a much lower level than pre-recession. Issuance is forecast to slightly decrease in the forecast period, averaging $70 billion, down from $77 billion in 2018.

• Commercial real estate prices are projected to grow at slowing rates relative to recent years, at 5.1% in ‘19, 4.0% in ’20, and 3.9% in ‘21, with the latter two years falling below the long-term average growth rate of 4.3% for the first time since 2010.

• Institutional real estate assets are expected to provide total returns of 6.0% in ‘19, moderating to 5.2% in ‘20 and 5.5% in ‘21. By property type, 2019 returns are forecast to range from industrial’s 11.0% to retail’s 2.9%. In ‘21, returns are forecast to range from industrial’s 7.1% to retail’s 3.0%.

• Both industrial and retail availability rates are expected to be unchanged in 2019 from their ‘18 rates, before edging up in both ‘20 and ‘21. Both apartment and office vacancy rates are expected to see a slight decrease in ‘19 before slightly increasing in both ‘20 and ‘21. The hotel occupancy rate is forecast to plateau in ’19, before edging down in ’20 and ‘21.

• Commercial property rent growth is expected to continue in the next three years in all sectors, although at decelerating rates. In 2019, rent increases will range from 3.6% for industrial to 1.0% for retail. Rent increases in 2021 will range from 2.4% for industrial to 1.0% for retail. Hotel RevPAR is expected to increase by 2.0% in 2019 and by 1.0% in 2020.

• Single-family housing starts are projected to slightly decrease from their 2018 level of 875,800 units to 850,000 in ’19 which would see the end of seven straight years of growth. Starts are then projected to continue to moderate to 810,000 in ’20 and 800,000 in ‘21.

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Economy

• The economists/analysts expect continued strong economic expansion in 2019, although at a slower rate than 2018’s post-recession high (also reached in 2015), with further moderated growth in ‘20 and ‘21. Employment growth, expected to be strong in ’19, is projected to moderate over the forecast period; still, the unemployment rate remains well below the long-term average during the forecast period.

• GDP growth strengthened to 2.9% in 2018, up from the 2.4% growth in ‘17. Growth rates are forecast to moderate to 2.3% in ‘19 before moderating to 1.7% in ’20, and ticking back up to 1.9% in ‘21.

• Employment growth is expected to moderate from the 2.68 million jobs added in 2018 to 2.25 million jobs in ’19 and 1.44 million in ‘20, before inching up to 1.50 million in ‘21.

• The unemployment rate is expected to continue its nine-year decline in 2019, reaching 3.7% by the end of that year before reversing and ticking up to 4.0% in ’20 and 4.1% in ‘21.

• Compared to forecasts of 6 months ago, the forecast for GDP is unchanged for ‘19, less optimistic for ’20, and more optimistic for ‘21. The employment growth forecast is more optimistic for all three forecast years, while the unemployment rate forecast is unchanged for ’19, slightly less optimistic for ’20, and slightly more optimistic for ‘21.

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Real GDP Growth

1.9%

-0.1%

-2.5%

2.6%

1.6%

2.2%

1.8%

2.5%

2.9%

1.6%

2.4%

2.9%

2.3%

1.7%1.9%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

20-Year Avg. (2.23%)

* *

Sources: 1999-2018, Bureau of Economic Analysis; 2019-2021, ULI Real Estate Economic Forecast. *Indicated directions (↑ ↓ =) refer to the current forecast relative to the previous ULI Real Estate Economic Forecast, released in April, 2019. Previous projections were 2.3%, 1.8%, and 1.8%, respectively, for 2019 2020, and 2021.

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*


Employment Growth

Sources: 1999-2018, Bureau of Labor Statistics; 2019-2021 ULI Real Estate Economic Forecast. Note: The previous ULI Real Estate Economic Forecast (released in April, 2019) projected 2.10, 1.42, and 1.20, respectively, for 2019, 2020, and 2021.

1.14

-3.55

-5.05

1.04

2.08 2.17 2.30

3.012.73

2.32 2.15

2.68

2.25

1.44 1.50

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Mill

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s o

f Jo

bs

20-Year Avg. (1.13)

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ULI Real Estate Real Estate Economic Forecast

Unemployment Rate

5.0%

7.3%

9.9%

9.3%

8.5%7.9%

6.7%

5.6%5.0%

4.7%4.1% 3.9% 3.7%

4.0% 4.1%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

20-Year Avg. (5.9%)

Sources: 1999-2018, (seasonally adjusted, as of December), Bureau of Labor Statistics; 2019-2021 (YE), ULI Real Estate Economic Forecast. Note: The previous ULI Real Estate Economic Forecast (released in April, 2019) projected 3.7%, 3.9%, and 4.3%, respectively, for 2019, 2020, and 2021.

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Inflation, Interest Rates, and Cap Rates

• The CPI inflation rate has remained below the 20-year average of 2.2% for the past 7 years and is expected to remain so over the forecast period. The CPI was 1.9% in 2018; it is projected to stay at 1.9% in ’19 and inch up to 2.0% in ‘20 and 2.1% in ‘21.

• The ten-year treasury rate has remained below the 20-year average of 3.5% for 9 years and is also expected to remain so over the forecast period. The ten-year treasury rate was 2.7% year-end ’18; it is expected to fall to 1.8% by year-end ‘19 before ticking up to 2.0% in ‘20 and 2.3% in ‘21.

• Capitalization rates for institutional-quality investments (NCREIF cap rates) have steadily declined since 2009, and were at 4.8% in ‘18. They are expected to remain at 4.8% in ’19 before edging up to 5.0% in ‘20 and remaining at 5.0% in ‘21.

• Compared to the forecast from 6 months ago, the forecasts for the CPI inflation rate is lower in ‘19 and ‘20 but unchanged for ’21, while the ten-year treasury rate forecast is lower for all three forecast years. The NCREIF cap rate forecast is unchanged for both ‘19 and ’20, but lower in ‘21.

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Consumer Price Index Inflation Rate

4.1%

0.1%

2.7%

1.5%

3.0%

1.7%1.5%

0.8%0.7%

2.1% 2.1%

1.9% 1.9%2.0%

2.1%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

20-Year Avg. (2.2%)

Sources: 1999-2018, (12-month change, as of December), Bureau of Labor Statistics; 2019-2021 (YE), ULI Real Estate Economic Forecast. Note: The previous ULI Real Estate Economic Forecast (released in April, 2019) projected 2.0%, 2.1%, and 2.1%, respectively, for 2019, 2020, and 2021.

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Ten-Year Treasury Rate

4.0%

2.3%

3.9%

3.3%

1.9%1.8%

3.0%

2.2% 2.3%2.5% 2.4%

2.7%

1.8%2.0%

2.3%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

20-Year Avg. (3.51%)

Sources: 1999-2018 (YE), U.S. Federal Reserve; 2019-2021 (YE), ULI Real Estate Economic Forecast. Note: The previous ULI Real Estate Economic Forecast (released in April, 2019) projected 2.8%, 2.9%, and 2.9%, respectively, for 2019, 2020, and 2021.

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NCREIF Capitalization Rate

5.6%

6.0%

6.9%6.3%

6.0%

5.9% 5.7%5.5%

5.1% 5.1%5.0% 4.8% 4.8%

5.0% 5.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

20-Year Avg. (6.36%)

Sources: 1999-2018, (Q4), National Council of Real Estate Investment Fiduciaries (NCREIF); 2019-2021 (YE), ULI Real Estate Economic Forecast. Note: The previous ULI Real Estate Economic Forecast (released in April, 2019) projected 4.8%, 5.0% and 5.2%, respectively, for 2019, 2020, and 2021.

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Real Estate Capital Markets

• Commercial real estate transaction volume reached $579 billion in 2018, a post-recession high. Volume is expected to moderate in the forecast years to $500 billion in ‘19, $480 billion in ‘20, and $470 billion in ‘21. Despite these projected declines, volumes remain substantially above the 18-year annual average of $328 billion.

• Issuance of commercial mortgage-backed securities (CMBS), a source of financing for commercial real estate, has rebounded since a low in 2009 but at a much lower level than pre-recession levels. CMBS issuance is expected to be $75 billion in ’19, $65 billion in ‘20, and $75 billion in ‘21.

• Compared to the forecasts of 6 months ago, the three-year averages of the forecasts for both transaction volume and CMBS issuance are less optimistic.

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Commercial Real Estate Transaction Volume

$582

$181

$72

$155

$260

$310

$378

$453

$571

$514$491

$579

$500$480 $470

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Bill

ion

s o

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olla

rs

18-Year Avg. ($328)

Sources: 2001-2018, Real Capital Analytics; 2019-2021, ULI Real Estate Economic Forecast. Note: The previous ULI Real Estate Economic Forecast (released in April, 2019) projected $535, $500 and $480, respectively, for 2019, 2020, and 2021.

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Commercial Mortgage-Backed Securities (CMBS) Issuance

Sources: 1999-2018, Commercial Mortgage Alert; 2019-2021, ULI Real Estate Economic Forecast. Note: The previous ULI Real Estate Economic Forecast (released in April, 2019) projected $80 billion, $75, and $70 billion, respectively, for 2019, 2020, and 2021.

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$229

$12$3

$11

$31

$45

$82$90 $95

$69

$88

$77 $75$65

$75

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Bill

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f D

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rs

20 Year Avg. ($80)


Real Estate Returns and Prices

• The RCA Commercial Property Price Index (CPPI) has had some recent high growth years. Prices are expected to continue to grow, although at slowing rates in the next three years, at 5.1% in 2019, 4.0% in ’20, and 3.9% in ’21. The growth rate in 2020 dips below the long-term average of 4.3% for the first time in 10 years.

• Equity REIT total returns in 2018, according to NAREIT, were negative for the first time since 2008 at -4.6%. Future returns are expected to return to positive throughout the forecast period, at 15.0% in ’19, 6.3% in ‘20, and 8.0% in ’21.

• Total returns for institutional-quality direct real estate investments, as measured by the NCREIF Property Index (NPI), was positive for the ninth straight year in 2018 at 6.7%, though it was below the long-term average of 9.3% for the third straight year. This trend is expected to continue over the forecast period, with returns of 6.0% in ‘19, 5.2% in ’20, and 5.5% in ‘21.

• Compared to the forecasts of 6 months ago, the forecasts for CPPI growth, REIT returns, and NCREIF total returns are more optimistic throughout the forecast period.

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RCA Commercial Property Price Index (annual change)

2.9%

-13.6%

-21.0%

-1.0%

6.8%6.3%

10.3%11.5%

9.2%8.3% 8.6%

6.2%5.1%

4.0% 3.9%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

18-Year Avg. (4.3%)

Sources: 2001-2018, Real Capital Analytics; 2019-2021, ULI Real Estate Economic Forecast.Note: The previous ULI Real Estate Economic Forecast (released in April, 2019) projected 5.0%, 3.7%, and 2.8%, respectively, for 2019, 2020, and 2021.

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Equity REIT Total Annual Returns

-15.7%

-37.7%

28.0% 28.0%

8.3%

18.1%

2.5%

30.1%

3.2%

8.5%

5.2%

-4.6%

15.0%

6.3%8.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

20-Year Avg. (11.46%)

Sources: 1999-2018, National Association of Real Estate Investment Trusts; 2019-2021, ULI Real Estate Economic Forecast. Note: The previous ULI Real Estate Economic Forecast (released in April, 2019) projected 6.0%, 5.3%, and 5.8%, respectively, for 2019, 2020, and 2021.

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NCREIF Total Annual Returns

15.8%

-6.5%

-16.8%

13.1%14.3%

10.5% 11.0%11.8%

13.3%

8.0%

7.0% 6.7% 6.0%5.2% 5.5%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

20-Year Avg. (9.3%)

Sources: 1999-2018 National Council of Real Estate Investment Fiduciaries (NCREIF); 2019-2021, ULI Real Estate Economic Forecast. Note: The previous ULI Real Estate Economic Forecast (released in April, 2019) projected 6.0%, 5.0%, and 5.0%, respectively, for 2019, 2020, and 2021.

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NCREIF Returns by Property Type

• NCREIF total returns in 2019 for the industrial, apartment, and office sectors are expected to moderate relative to returns in ‘18, while retail is expected to see higher returns in ‘19. By property type, 2019 returns for the industrial sector are forecast at 11.0%, followed by office returns at 6.0%, apartment returns at 5.7%, and retail returns at 2.9%.

• By 2021, industrial, apartment, and office returns are expected to further moderate, with industrial returns forecast at 7.1%, apartment returns at 5.5%, and office returns at 5.1%. Retail returns are expected to rise slightly, although stay low at 3.0%.

• Compared to 6 months ago, the three-year averages of the forecast for both industrial and office returns are more optimistic. The three-year averages of the forecast for both apartment and retail returns are slightly less optimitic.

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NCREIF Industrial Total Annual Returns

14.9%

-5.8%

-17.9%

9.4%

14.6%

10.7%12.3%

13.4%14.9%

12.3%13.1%

14.3%

11.0%

8.0%7.1%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

20-Year Avg. (10.3%)

Sources: 1999-2018, National Council of Real Estate Investment Fiduciaries (NCREIF); 2019-2021, ULI Real Estate Economic Forecast. Note: The previous ULI Real Estate Economic Forecast (released in April, 2019) projected 10.3%, 8.0%, and 7.0%, respectively, for 2019, 2020, and 2021.

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NCREIF Office Total Annual Returns

20.5%

-7.3%

-19.1%

11.7%13.8%

9.5% 9.9%11.5%

12.5%

6.2% 6.0% 6.9% 6.0% 5.1% 5.1%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

20-Year Avg. (8.7%)

Sources: 1999-2018, National Council of Real Estate Investment Fiduciaries (NCREIF); 2019-2021, ULI Real Estate Economic Forecast.Note: The previous ULI Real Estate Economic Forecast (released in April, 2019) projected 6.0%, 4.8%, and 4.7%, respectively, for 2019, 2020, and 2021.

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NCREIF Apartment Total Annual Returns

11.4%

-7.3%

-17.5%

18.2%

15.5%

11.2%10.4% 10.3%

12.0%

7.3%

6.2% 6.1% 5.7% 5.0% 5.5%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

20-Year Avg. (9.2%)


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NCREIF Retail Total Annual Returns

13.5%

-4.1%

-10.9%

12.6%13.8%

11.6%12.9% 13.1%

15.3%

9.0%

5.7%

2.2%2.9% 2.6% 3.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2020

20-Year Avg. (10.3%)


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Industrial/Warehouse Sector Fundamentals

• The availability rate for the industrial/warehouse sector declined to 7.0% at the end of 2018, an 18-year low. Availability rates are expected to plateau at 7.0% in ’19, before edging up to 7.2% in ’20 and 7.4% in ‘21. Rates in all three forecast years are well below the 20-year average.

• Warehouse rental rate growth in the last six years has been substantially above the long-term annual average of 1.3%. Healthy growth is expected to continue in the forecast years, although at moderating rates, with increases of 3.6% in 2019, 3.0% in ‘20, and 2.4% in ‘21.

• Compared to the forecast from six months ago, the three-year averages of the forecast of both availability rates and rental rate growth are slightly less optimistic.

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Industrial/Warehouse Availability Rates

9.9%

11.8%

14.3% 14.1%

13.2%

12.3%

10.8%

9.6%

8.7%

7.6% 7.4%7.0% 7.0% 7.2%

7.4%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

20-Year Avg. (10.2%)

Sources: 1999-2018 (Q4), CBRE; 2019-2021, ULI Real Estate Economic Forecast. Note: The previous ULI Real Estate Economic Forecast (released in April, 2019) projected 6.9%, 7.0%, and 7.1%, respectively, for 2019, 2020, and 2021.

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Industrial/Warehouse Rental Rate Change

3.3%

0.3%

-10.2%

-6.7%

-0.8%

1.2%

3.6%

4.8% 4.4%5.1% 4.8%

3.5% 3.6%3.0%

2.4%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

20-Year Avg. (1.26%)

Sources: 1999-2018, CBRE; 2019-2021, ULI Real Estate Economic Forecast. Note: The previous ULI Real Estate Economic Forecast (released in April, 2019) projected 3.8%, 3.0%, and 2.4%, respectively, for 2019, 2020, and 2021.

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Apartment Sector Fundamentals

• Even with continued strong construction activity, the apartment sector has performed very well, with vacancy rates falling to 4.4% at the end of ’18, an 18-year low. Vacancy rates are expected to inch down further to 4.3% by the end of ’19, before slightly increasing to 4.5% in ‘20 and 4.7% in ’21, still all below the long-term average.

• Rental rate growth, which has experienced 9 consecutive years of growth over 2%, is expected to continue that trend during the forecast period. Rent growth of 3% is expected in ’19, although moderating to 2.3% in ’20, and remaining at 2.3% in ’21.

• Compared to 6 months ago, the three-year averages of the forecasts for both vacancy rates and rental rate growth are more optimistic.

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Apartment Vacancy Rates

5.8%6.2%

7.1%

5.7%5.5%

5.1% 5.2%

4.6% 4.6%4.9%

4.8%4.4% 4.3%

4.5%4.7%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

20-Year Avg. (5.28%)

Sources: 1999-2018 (Q4), CBRE; 2019-2021 (Q4), ULI Real Estate Economic Forecast. Note: The previous ULI Real Estate Economic Forecast (released in April, 2019) projected 4.6%, 4.8%, and 4.9%, respectively, for 2019, 2020, and 2021.

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Apartment Rental Rate Change

2.7%

-0.8%

-6.0%

4.4% 4.5%

3.5%

2.2%

4.4% 4.3%

2.1% 2.2%

3.2% 3.0%

2.3% 2.3%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

20-Year Avg. (2.3%)


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Office Sector Fundamentals

• The office vacancy rate was 12.4% at the end of ‘18, an 18-year low. Rates are forecast to edge down to 12.2% in ‘19 before reversing direction and increasing to 12.5% in ‘20 and 12.8% in ‘21. All of these rates remain below the 20-year average.

• Office rental rates increased 2.5% in 2018, above the 20-year average of 1.6%. Rental rate growth is expected to rise to 2.8% in ‘19, before falling to 1.8% in ’20 and 1.6% in ‘21.

• Compared to 6 months ago, the forecasts for both office vacancy rates and office rental rate change are more optimistic for all three forecast years.

32


Office Vacancy Rates

12.5%

14.1%

16.5% 16.4%16.0%

15.4%14.8%

13.9%

13.0% 12.8% 12.9%12.4% 12.2% 12.5% 12.8%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

20-Year Avg. (13.9%)

Sources: 1999-2018 (Q4), CBRE; 2019-2021, ULI Real Estate Economic Forecast. Note: The previous ULI Real Estate Economic Forecast (released in April, 2019) projected 12.5%, 12.8%, and 13.0%, respectively, for 2019, 2020, and 2021.

33


Office Rental Rate Change

10.1%

3.9%

-12.6%

-4.6%

3.3%3.9%

2.7%

4.8%4.2%

1.4% 2.1%2.5% 2.8%

1.8% 1.6%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

20-Year Avg. (1.6%)

Sources: 1999-2018, CBRE; 2019-2021, ULI Real Estate Economic Forecast.Note: The previous ULI Real Estate Economic Forecast (released in April, 2019) projected 2.4%, 1.5%, and 1.3%, respectively, for 2019, 2020, and 2021.

34


Retail Sector Fundamentals

• Retail availability rates were at 9.0% in ‘18, the lowest post-recession rate, also seen in 2016. The forecast anticipates no change in ‘19, but slight increases the next two years, edging up to 9.2% in ‘20 and 9.5% in ‘21.

• Retail rental rate growth reached a post-recession high of 3.1% in 2017 before moderating to 2.4% in ‘18. The forecast expects growth to further moderate during the forecast period to 1.8% in ‘19, 1.0% in ‘20, and remain at 1.0% in ‘21.

• Compared to 6 months ago, the three-year average of the forecast for retail availability rates is the same, while the average of the three-year forecast for retail rental rate growth is slightly more optimistic.

35


Retail Availability Rates

9.0%

10.8%

12.5%12.8% 12.8%

12.3%

11.4%

10.7%10.2%

9.0%

9.5%

9.0% 9.0% 9.2% 9.5%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

20-Year Avg. (9.7%)

Sources: 1999-2018 (Q4), CBRE; 2019-2021, ULI Real Estate Economic Forecast.Note: The previous ULI Real Estate Economic Forecast (released in April, 2019) projected 9.1%, 9.2%, and 9.4% respectively, for 2019, 2020, and 2021.

36


Retail Rental Rate Change

4.2%

-2.1%

-4.9% -5.1%

-2.0%

-0.2% -0.2%

0.9%1.3%

2.7%3.1%

2.4%

1.8%

1.0% 1.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

20-Year Avg. (1.3%)


37


Hotel Sector Fundamentals

• Hotel occupancy rates, according to STR, have been steadily improving for nine years; occupancy rates came in at 66.2% in 2018, above the twenty-year average for the 6th year in a row. Rates are forecast to remain strong over the forecast years, staying level at 66.2% in ’19 but moderating slightly to 65.7% in ‘20 and 65.2% in ‘21.

• Following seven years of above-average hotel revenue per available room (RevPAR) growth, the RevPAR growth rate dipped below the long-term average in ‘17 to 2.9% and plateaued at that rate in ’18. The growth rate is expected to moderate further to 2.0% in ‘19, 1.2% in ’20, and 1.0% in ‘21.

• Compared to the forecast of 6 months ago, the current forecast for occupancy rates is unchanged for ‘19, but less optimistic for both ‘20 and ’21. The forecast for RevPAR growth is less optimistic for ’19 and ‘20, and unchanged for ’21.

38


Hotel Occupancy Rates

62.8%59.8%

54.6%57.6%

60.0%61.4% 62.3%

64.4% 65.4% 65.4% 65.9% 66.2% 66.2% 65.7% 65.2%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

20-Year Avg. (61.9%)

Sources: 1999-2018, (December, 12-month rolling average), STR; 2019-2021, ULI Real Estate Economic Forecast. Note: The previous ULI Real Estate Economic Forecast (released in April, 2019) projected 66.2%, 65.9%, and 65.7%, respectively, for 2019, 2020, and 2021.

39


Hotel Revenue per Available Room (RevPAR) Change

6.1%

-2.0%

-16.6%

5.4%

8.1%

6.7%

5.2%

8.2%

6.1%

3.1% 2.9% 2.9%2.0% 1.2% 1.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

20-Year Avg. (3.0%)

Sources: 1999-2018, (December, 12-month rolling average), STR; 2019-2021, ULI Real Estate Economic Forecast. Note: The previous ULI Real Estate Economic Forecast (released in April, 2019) projected 2.5%, 2.0%, and 1.0%, respectively, for 2019, 2020, and 2021.

40


Housing Sector

• The single-family housing sector experienced positive growth in starts for the seventh straight year in 2018. This trend is expected to reverse in 2019, decreasing to 850,000 in ’19 and further moderating to 810,000 in ’20 and 800,000 in ‘21.

• According to the FHFA, existing home prices increased an average of 5.9% in 2018, the seventh consecutive year of strong price growth. Price growth is expected to moderate during the forecast period to 4.0% in ‘19, 2.5% in ‘20, and 3.0% in ‘21.

• Compared to six months ago, the three-year averages of the forecasts for both housing starts and existing home price growth are less optimistic.

41


Single-Family Housing Starts

1,046,000

622,000

445,100471,200

430,600

535,300

617,600647,900

714,500

781,500

848,900875,800

850,000810,000 800,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

20-Year Avg. (974,615)

Sources: 1999-2018, (Structures w/ 1 Unit), U.S. Census; 2019-2021, ULI Real Estate Economic Forecast.Note: The previous ULI Real Estate Economic Forecast (released in April, 2019) projected 900,000, 888,537, and 850,000, respectively, for 2019, 2020, and 2021.

42


Average Home Price Change

-3.3%

-10.4%

-2.0%

-3.9%

-1.4%

5.2%

6.9%

5.1% 5.5%

6.3%6.8%

5.9%

4.0%

2.5%3.0%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

20-Year Avg. (3.9%)

Sources: 1999-2018, (Seasonally Adjusted, December Y/Y), Federal Housing Finance Agency; 2019-2021, ULI Real Estate Economic Forecast. Note: The previous ULI Real Estate Economic Forecast (released in April, 2019) projected 4.0%, 3.2%, and 2.8% respectively, for 2019, 2020, and 2021.

43

Firms That Participated in the ULI Real Estate Consensus Forecast

continued…….

Organization Lead Economist/Analyst Title

Aberdeen Standard Investments Simon Kinnie Head of Real Estate Pricing

Alvarez & Marsal Steven Laposa Senior Advisor

Bentall Kennedy Douglas Poutasse EVP, Head of Strategy and Research

Berkshire Residential Investments Gleb Nechayev SVP, Head of Research

CBRE Jeanette Rice Americas Head of Multifamily Research

CCIM Institute Kiernan Conway Chief Economist

Clarion Partners Tim Wang Managing Director & Head of Investment Research

CoreLogic, Inc. Frank E. Nothaft Executive, Chief Economist

Cushman & Wakefield Revathi Greenwood Head of Americas Research

Rebecca Rockey Economist, Head of Forecasting

DWS Kevin White Head of Americas Strategy, Alternatives

Eigen 10 Advisors, LLC Paige Mueller Managing Director

Everest Healthcare Properties, LLC David J. Lynn CEO, President and Founder

James Emert Analyst


continued……


Green Street Advisors Dave Bragg Managing Director

Peter Rothemund Senior Analyst

Harrison Street Real Estate Thomas Errath Director

Heitman Mary Ludgin Senior Managing Director

Hines Josh Scoville Senior Managing Director

JLL Ryan Severino Chief Economist, Americas Research

Josh Gelormini Vice President, Americas Research

LaSalle Investment Management Richard Kleinman Managing Director, Research & Strategy

William Maher Head of Research, Americas

Linneman Associates Peter Linneman Principal

Marcus & Millichap John T. Chang Senior Vice President, Director of Research

Peter Tindall Vice President, Research Data & Analytics

MetLife Investment Management Adam Ruggiero Head of Real Estate Research

NAREIT Calvin Schnure Senior Vice President, Research & Economic Analysis

National Association of REALTORS Lawrence Yun Chief Economist



Oxford Economics Matthew Mowell Senior Economist

Aran Ryan Director, Lodging Analytics

PGIM Real Estate Lee Menifee Managing Director, Head of Americas Investment Research

PNC Financial Services Group Augustine Faucher Chief Economist

Stuart Hoffman Senior Vice President and Senior Economic Advisor

PwC, LLP Andrew Warren Director, Real Estate Research

RCLCO Taylor Mammen Senior Managing Director

Ben Maslan Managing Director

Reis/Moody’s Analytics Dr. Victor Calanog Chief Economist

Cody Bond Economic Analyst

Rosen Consulting Group Kenneth T. Rosen Chairman

Randall Sakamoto President

Situs RERC Ken Riggs President

Jodi Airhart Director of Research and Publications

Stockbridge Associates, LLC George Casey CEO

Trepp, LLC Matthew Anderson Managing Director

Urban Land Institute

About the Urban Land Institute The Urban Land Institute is a nonprofit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in sustaining and creating thriving communities worldwide. Established in 1936, the Institute has more than 40,000 members representing all aspects of land use and development disciplines. For more information, please visit www.uli.org.

Urban Land Institute

© October 2019 by the Urban Land Institute.

This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. The Urban Land Institute cannot accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

ULI Real Estate Economic Forecast A Survey of Leading Real Estate Economists/Analysts

October 2019

ULI Center for Capital Markets and Real Estate

Anita Kramer Owen Benge

Senior Vice President Senior Associate

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